 Good morning, welcome to CMC markets on Friday the 24th of February and this quick look at this quick look at the week ahead beginning the 27th of February with me Michael Houston It's also a significant day today. It's one year on from the Russian invasion of Ukraine and It seems remarkable to me that European markets have recovered all of the losses of Last year and are actually now Slightly higher than they were this time last year while US markets are broadly lower Although not by much despite the significant weakness. We've seen in the tech sector It's even more remarkable. I think given how much higher interest rates are now than they were a year ago if you think about February this time last year the Federal Reserve was actually still easing monetary policy and now it's It's the the Fed funds rate is now at four and a half to four point seven five percent Bank of England is at four percent ECB you know is back above three percent and likely to go by another 50 basis points in March Nonetheless, there has been a cost. There's been an economic cost in terms of this these higher levels of interest rates high inflation there has been a Cost of the cost of living we've seen that saw It's also important to note the billions of dollars euros in sterling that have been spent To support respective economies which have gone a long way to cushion the blow But certainly haven't cushioned it completely Along with the fact that we've also been helped by the fact that demand in China Has been constrained by COVID restrictions which have taken some of the pressure of Energy demand in fact if you look at commodity prices particularly wheat and corn We can see that after the spike of 2022 We settled back a much more realistic levels back to the levels that we were back in 2007, but also Back at the levels that we were in September the summer of 2012 When there were those fires in the bread basket of Europe of Russia and Ukraine which decimated the Wheat and corn crops from that particular year the difference this time, however is While the capacity from Ukraine and Russia came back online in subsequent years and subsequent harvests Don't think that's going to help us this time and for that reason alone I think it's going to be quite likely that inflationary pressures are likely to remain elevated earlier this week We had Citigroup Talk about the post the prospects that UK inflation could fall back to 2% by the autumn now I'm really struggle with that idea. I really do when you look at the price pressures that are currently starting to see pin to core prices this week EU CPI Core CPI was revised to a new record higher 5.3% even though the headline numbers have fallen quite sharply in the past two or three months today we've got us core PCE and Certainly, I think in the context of recent ISM numbers services numbers Inflation numbers retail sales of 3% in January. I think it's highly unlikely that the declines in headline inflation While they'll still happen I think we'll start to see I think core prices are going to be much more difficult to bring lower and I think that's something That markets still haven't really come to terms with when it comes to What is likely to come next? We've priced out the prospects of rate cuts this year Given the recent narratives from the likes of Bullard and Mester that we saw last week Bullard this week clarified his position on the neutral rate for His projections which is around about five point three seven percent or five and three eights Which is broadly in line with the five point four percent than Neil Kashkari of the Minneapolis Fed suggested would be The ripe the ripe rate for a pause So you're talking five point two five to five point five percent Fed funds rate Which is another two twenty five basis point rate hikes The bigger question is when a rates likely to come down and an awful lot of that will depend on Obviously core inflation and at the moment that runs that is running the risk of not only Remaining sticky, but potentially edging a little bit higher Certainly that has been the trend if we look away from the headline inflation numbers So what's that meant to stock markets this week with stock markets this week? I think I've struggled a little bit. We've come under pressure We're still we've still been fairly resilient overall and certainly I think European markets have Continued to maintain the resilience that we've had over the course of the past few days But we have seen significant weakness this week But given how far we've come since the start of the year We were always going to get some form of a pullback and at the moment with respect to the FTSE 100 If we look at this series of highs back in January 7875 we pretty much bounced off that earlier this week So that for me 7875 is going to be a key support level anywhere between 7875 and 7900 if we start to break through that then we could well slip back towards the 50-day moving average But overall the trend higher for European markets remained intact remains intact So I'm not ready to throw in the towel on a peak on European markets the trend doesn't support that So for all the headlines that we've been saying about all we you know European markets are likely to start to roll over I'm not seeing any evidence of that And if we look at the way that the DAX has rebounded this week Let's continue to find support in and around 15,240 there or thereabouts we look at the 10th affair blows we look at the 13th affair we look at the lows this week fairly solid support at those sorts of levels also 50-day moving average and the trend line from the lows there So for me that what we're seeing at the moment still remains very much by the dip territory US markets again, but we are once again testing a fairly key support line on the S&P 500 And as well as the 50-day moving average there I would argue potentially that the US market rally is probably more at risk than the European one That's not to say that we can't continue to move higher, but at the moment with the likelihood of Higher rates for longer. It remains. I think probably at a greater risk of rolling over them perhaps the Rally that we're seeing in European markets But it's certainly a level to keep an eye out for the 50-day moving average the 200-day moving average on The S&P 500 Similarly with the NASDAQ again, we're finding some fairly decent support and then around that 12,000 area which also coincides with these series of peaks through here So I think it's important to keep an eye on that as well as the 50-day The 200-day moving average and the 50-day moving average which is converging there We are looking a little bit oversold, but that's not to say that we can't ratchet lower if we get a break of those key supports so I think that in a nutshell I think sums up where we are in terms of Stock markets the dollar is starting to make a bit of a comeback and I think while the dollar remains strong It's going to be very difficult for US markets to rally I think we're still on course on your dollar from move to 10480, which is these lows here We're slowly rolling over on the 50-day moving average Which is now starting to act as a little bit of a cap on euro strength We're still going to get that 50 basis point rate move from the ECB in March It's really a question of what comes after that particularly when you see that the German economy contracted by 0.4% in the fourth quarter, which was a downgrade from the previous Minus 0.2% so the German economy is still struggling energy prices have come down But the bigger question I think that needs to be asked with respect to energy prices is can they come much lower? given the fact that The capacity, you know while the Ukraine war is rumbling on Russia is going to be shut out of Global energy markets and the only business that they're going to be able to do is with countries like China and India and and obviously other the other states of That nature so you could be looking at Iran as well because They're not going to be able to do business in the normal way Which essentially will mean that China will be able to strike a very hard bargain when it comes to Russian oil and gas They'll be able to drive the price down so You know that that basically means that they're going forward It's going to be very very difficult for energy prices to Move much below the levels that we've seen already this week I'll come to actually come to them now seeing as I'm talking about them and make sense We asked in the downtrend that we've been in for Brent crude over the course of the past few weeks but it's interesting to know here that what we've got is Nice little uptrend going through here So at some point something has to give on this now There has been some talk that oil prices could go above 90 to 100 dollars a barrel at the moment The price action does not support that but if we do break above these peaks back in February Which is around about the 87 dollars a barrel level 88 87 88 dollars a barrel We could we'll see a ratchet up to 1995 but it's also interesting to note that despite all the bullishness and oil prices some of the more Extreme examples of hundred hundred and ten dollars a barrel have started to come in from the big US Bank, so Certainly worth keeping an eye on when it comes to crude oil prices going forward With respect to the dollar again moving moving back to this We're still stuck in this range on the cable between the 50 and 200 day moving average. I Expect that to continue with a slight downward bias towards 1835 in the same way that I would expect the euro dollar to track lower towards its previous lows at 104 80 1835 is I think the key support level on cable With the 50 day moving average on the upside capping any declines around a copy any advances around about 122 121 80 has laid out in my daily note Which can be found on the news and analysis section of the CMC markets Website euro sterling still very much stuck in a range. We can see that there Finding a little bit of resistance around the 50 day moving average here But we could probably draw a line through this series of peaks through here to get a good indication of where we are on Euro sterling it's certainly worth keeping an eye on that trend line resistance There as we look ahead to next week. We've got EU flash CPI for February That's going to be particularly interesting in terms of whether or not core prices go any higher They're already a record higher 5.3 percent The bigger question I think with respect to February Flash CPI as we look ahead to next week is whether or not it's going to come down any further Now predictions are for that to come down from eight point six to eight point one But again core prices are expected to remain static at around about five point three percent And potentially could even head towards had higher to a new record of five point four. So Can you see flash CPI on the second of March on the Tuesday we've got also ISM services data on February the 3rd of March no non-farm payrolls on the 3rd of March That's been suppose that's been postponed or pushed out to the 10th Largely on the basis of the fact that February being a short month It hasn't given them enough time to collect the data. That's the 10th of March. Unfortunately, there won't be a webinar non-farm payrolls webinar that particular day because I will be doing a Client event in Dublin. So unfortunately, I won't be available to do the webinar Nonetheless, I'll probably do a little bit of a little bit of a preview Next Friday, albeit it'll be Slightly dated by the time the payrolls numbers come around So we've got fairly light data week Services ISM that was a really decent number in the January numbers and obviously that prompted the real hawkish spike that we saw particularly in US two-year to and 10 year Treasury yields and which has seen us basically rise up to around about 4.7% as can be seen from this graph here So we're back at the levels that we were back in November for the two-year around about 4.7% and I think the bigger question that people will be asking is whether or not the January spike in the ISM services will translate into a similar resilience in February and that I think will be a key arbiter of whether or not We start to see a little bit of softening in the recent rise that we've seen in the US dollar So keep an eye on those two-year yields 4.7% if we start to head higher than that Then that is obviously going to exert further upward pressure on the US dollar in terms of earnings announcements coming up We have got associated British foods Primark They've seen some fairly decent gains so far this year and they are long overdue because certainly I think looking at the numbers last year This is their Q2 numbers We've seen an over 50% rally since those 10 year lows back in October And that suggests that potentially we could well see further gains back to the levels that we saw Back in the highs of last year January 2022. There's no reason to suppose that we cannot If we look at all of their businesses for the new year Primark said they expect They're adjusted operating margin to fall to lower than 8% on the back of higher costs They're also keeping the prices unchanged for both the winter and summer ranges But total group revenue in January increased 20% 6.7 billion pounds With the retail business reporting a 15% increase in revenues to 3.14 billion pounds It's primark is getting even greater UK market share 7% of the total clothing market and European trading has also been strong with new stores in Romania and Italy Said to be trading strongly so if Performance across all their retail markets continues to trade In line with a decent performance that we saw in Q1 then We could see further news in So moving on from Associated British foods. We've also got the latest numbers from Ricardo, but I'm not going to focus on them I'm going to look at ITV because we've seen some fairly Decent performance decent recovery from ITV's share price over the course of the past few months Some of that has been around speculation that ITV studios could be the target of a takeover bid In November ITV reported total revenue is a date of a 6% rise to 2.95 billion pounds But it's the advertising business where they have actually been struggling somewhat of an Achilles heel Q3 numbers were expected to be disappointing and were Not really a surprise We saw total advertising revenues down in July August September and October The big question is is how how well that did they do in December with the with the with the World Cup? Did that provide a significant boost? ITV studios has continued to do well 6% increase in revenues in Q3 Obviously, this is part of the business that is really Contributing quite significantly and is now set to make up over 50% of ITV's overall revenues ITVX is obviously also been launched and was launched on the 8th of December and in January ITV announced that its revamped service Would had delivered a 55% increase in viewing in December as well as a 65 increase in online users So the big question around that speculation will continue to rise With respect to a sell-off of its ITV studios I do not expect that to amount to anything because why would you sell your best performing asset? It just it's just a completely ridiculous notion, but then again stranger things have happened. That's ITV We've also got Target Big US retailer and we saw what Walmart come out with its numbers Earlier in the week and they were middling and slightly better than expected But it was the outlook that I think was people were a little bit spooked by with respect to Walmart That is taking the edge off Target shares which appear to have found a little bit of an offer at around about 180, 180 dollars, 182 dollars Be interested to see whether or not they can they'll probably continue to trade in the range that they've been trading in Over the course of the last six to nine months and I don't expect to see any significant change there As I say they warned back in prop they warned on profits back in May and they struggled to recap or recoup those losses thus far Also got Rivian Been a bit of a car crash all told sorry pun completely intended When they reported back in Q3 there was optimism the share price is stabilized, but it's rolled over since then Certainly in terms of their output four-year losses are expected to still be in the region of five point four billion dollars Still has plenty of cash But rising costs are becoming a problem unless they look at raising prices in the months ahead since those November numbers are released The share price has fallen sharply Not for any other reason that US interest rates have continued to rise Which means that the case for investing in a loss making business is becoming a lot less compelling and Ultimately unless they can start to ramp up their 25,000 annual target growth annual target for deliveries and production quite significantly and they will continue to hemorrhage cash even though their order book is Fairly healthy. It's got a hundred and fourteen thousand pre-orders at last count So that's it for This week ladies and gentlemen once again. Thank you very much for listening I'll talk to you same time same place Next week. Have a great weekend and I'll speak to you next week. Thank you very much for listening